So the big topic on the Interwebs this morning is the quote that came from what seemed to be Paul Krugman's Google + page, and was subsequently removed, that had him saying:

"People on twitter might be joking, but in all seriousness, we would see a bigger boost in spending and hence economic growth if the earthquake had done more damage?"

Krugman has since denied that's his page. Here's the screenshot (it's on Facebook, so you may not be able to get it) if you're interested. Several observations:

1. As Roger Koppl pointed out on Facebook, Krugman only denies having said it, he doesn't deny that he agrees with that statement.

2. As several others have pointed out on Facebook (Lynne Kiesling and Will Luther especially), the problem with the "disasters are good for the economy" nonsense, and GDP more generally, is that it confuses a flow with a stock. GDP measures a flow of activity, not a stock of wealth. Destroying things and then rebuilding them might increase economic activity in the area affected (by drawing resources from elsewhere), but leaves us with less wealth than we would have had without the disaster. That is the real meaning of the Broken Window Fallacy. Interested readers might also see Bob Murphy's blog post on this topic.

3. Finally, even if Krugman didn't say it, when he has, in fact, said things like the 9/11 attacks will be good for the economy and that the threat of an alien invasion is just what we need for a stimulus, and he's said them in his NYT column and on TV so we know they are really him, it's totally believable that he would have said what was attributed to him. Like the boy who cried wolf, but in reverse, we're going to believe it was him even when he didn't say it.

So even if Krugman didn't say it, the fact that it's so easy to believe he did, given his earlier verified statements, just points out how much of a caricature he's become. And that's unfortunate because his real work as an economist could be really good at times (e.g., Pop Internationalism among others). But when your legacy is thinking that the mere threat of a space alien invasion is good for the economy, it's hard to feel too sympathetic when you're misquoted saying what amounts to the same thing just in a different context.

"In this sense, I believe, we ought as economists think much more about the political significance of institutions which place a restraint on monetary policy and can shelter governments against political pressure, than about the ideal correctness of the policy which might be conducted. Central banks and ministers of finance will never be able to implement what the economist would regard as the wise policy. They will always have to act under political pressure, and all we can hope to do is to protect them against this political pressure as well as possible." - Hayek, "The Campagain Against Keynesian Inflation", p. 215.

No one, I hope, would ever accuse me of not thinking about institutions that would restrain monetary policy, nor not thinking more about them than "ideal policies." Reading Hayek also suggests that monetary policy makers are unlikely to lash themselves to the mast, which I believe is the flaw in Pete's position in our ongoing argument. Put differently: If we really endogenize the political process, why would we ever expect central bankers to freeze the monetary base, and therefore what point is there in telling them they should? If doing so requires somehow making institutional changes that overcome political self-interest, then go all the way and argue for free banking. If Pete thinks Bernanke can somehow overcome the various temptations without such institutional change and really freeze the base, then why can't he overcome those temptations and try to target nominal GDP in some form?

In any case, Pete can't have it both ways. If he really thinks the central bank can be convinced to freeze the base without fundamental institutional change that overrides political incentives, then why stop there? And if he thinks they are able to ignore political incentives and freeze the base, then why can't they ignore political incentives and target MV / nominal GDP? If neither some sort of MV/nominal GDP target nor freezing the base/money supply is compatible with political incentives, then Pete and I have played to a draw, it seems.

Note: I'm ignoring any differential knowledge problems that might arise in freezing the base vs. a nominal GDP target only because that's not the ground Pete's been playing on. His argument has been predominantly a public choice one from the start, as I read it. In any case, that's Hayek's point, so that might count that quote as evidence in favor of the argument I make above.

The Society for the Development of Austrian Economics is pleased to announce that nominations are now open for the 2011 Foundation for Economic Education Prizes for the best book and the best article recently published in Austrian economics.

The following conditions apply:

1. Authors nominated must be members in good standing with the SDAE (check the Society's website at http://it.stlawu.edu/sdae/ for information on how to join).

2. The books and articles nominated must have been published between January 1, 2009 and August 31, 2011.

3. Nominated articles should be emailed as an attachment or as a URL to the article to Chris Coyne – ccoyne3@gmu.edu

4. Nominations for the book prize should include the title and all other relevant information (publisher, date of publication, ISBN #) and be sent to the above email address. Those nominating books need not send copies. Edited volumes and short monographs are not eligible for the award.

5. All nominations must be received by Chris Coyne no later than October 15, 2011.

6. Self-nominations will not be accepted.

Each prize comes with a cash award of $500 thanks to the generous support of the Foundation for Economic Education (FEE). Recipients will be required to submit a short blog post on their winning book or article for posting on the FEE website. Winners will be announced at the annual banquet of the SDAE, this year in Washington, D.C. in conjunction with the Southern Economic Association meetings from November 19-21, 2011. The SDAE dinner will be held on Sunday, November 20.

Garrett Barden and Tim Murphy, Law and Justice in Community (Oxford University Press, 2010). This is a fantastic social-philosophic examination of the origins of law outside of the formal apparatus of the state. The book examines the sense of justice and of 'governance' that must exist for a community to survive, and demonstrates how this predates the establishment of formal government. The rules of social cooperation are written on the hearts and minds of men, well before they are written on parchment and enforced by the formal apparatus of coercion.

Jenna Bednar, The Robust Federation: Principles of Design (Cambridge University Press, 2009). Bednar explains how fragile political systems can be under a unified hierarchy, and instead how having multiple levels of governance can build in safeguards. No one set of institutions can do the trick, instead we need several institutions both competing and cooperating with one another. A workable constitution is not a one size fits all document.

Scott Page, Diversity and Complexity (Princeton University Press, 2011). This is an outstanding primer into the literature on complex systems analysis, and Page presents the material in a straightforward and entertaining manner. The work highlights not only the complexity of our social world, but how current literature is tackling that complexity systematically, and not simply reducing social complexity to simple phenomena in the name of mathematical tractability. In the process we are also learning more about diversity, novelty and creativity.

I will most likely be teaching from Bednar's book in my PhD course Constitutional Political Economy course in the Spring as well as Page's book for my PhD seminar in Advanced Topics in Austrian Economics. If the Barden and Murphy book were available in paperback, I'd use that as well for the CPE course. But since it is not, I will just borrow liberally from it in discussion.

Why am I high on these books?

First, I have personally since the 1980s being trying to champion the ideas of robust political economy on the one hand and creativity, complexity and coordination within the analysis of the market process on the other. And to see the relationship between the two through institutional design. This became most evident in my work on post-Soviet transition. But it is also evident in the work on development, and institutional entrepreneurship and constitutional craftsmanship. I have also emphasized for as long the de facto over the de jure in the understanding of law and order with respect to the economy. Unfortunately, I've written a lot of words about it, but none of my efforts have been as professionally persuasive as I had hoped they would be. The work of Bednar and Page are obviously more successful, and we can learn much from their efforts, their approach, their style and their substance. Barden and Murphy a deeper philosophic examination of the evolution of the rules of governance that provide the framework for the spontaneous order of social cooperation than earlier efforts.

Second, the work of Page on diversity and complexity captures aspects of the analysis of the dynamic market process that have eluded thinkers since Hayek, and yet many since Hayek have recognized must be incorporated into our analysis of the market but will not be until it is presented in a persuasive form to the modern scientific mind. In other words, Page (and work by Rob Axtell) represents one way to capture the sort of concerns Hayek had about the discovery, acquisition, and use of knowledge, and the learning, and adjustment to change, that takes place within the market process. And Barden and Murphy update Hayek's demand for analysis of law different from legislation. In other words, these books can be seen as the contemporary continuation of a unique Hayekian research program in political economy, social science, and jurisprudence.

Third, these works while advancing beyond the efforts I (and others in my generation of Austrians I'd argue) made in terms of professional persuasiveness, they do not exhaust the evolutionary potential of the ideas they are working with. So the next generation can build on these efforts and push the argument even further yet to make fundamental contributions to the field of understanding social dynamics, social change, and provide the institutional analysis required to advance the argument.

This is an absolutely fascinating article by Laura Vanderkam at City Journal (HT: Mark Perry/Carpe Diem) that explores the role of private donations and private management in caring for Central Park and other green spaces in New York City. Central Park remains public property, but the Central Park Conservancy that manages it relies overwhelmingly on private donations for its revenues.

But perhaps the most amazing thing about Central Park is how little tax money goes into maintaining it. Though it is still ultimately the city’s responsibility, the park has been managed since the 1980s by the nonprofit Central Park Conservancy, and it relies on private donations for most of its budget.

These are, to use a phrase from the article, "privately funded public spaces." It's also worth noting, as the article does, that the condition of the parks has improved tremendously since the private organizations took over managing them. This seems to be a sort of "third way" solution that Lin Ostrom might appreciate. Read the whole thing.

Footnote: recently, and I can't remember where, I was in a debate, perhaps at IHS this summer or maybe on Facebook, about how a free market would deal with public spaces like these. My interlocutor said "but what if someone wanted to, say, buy up Central Park and turn it into condos?" My response was something like: "if people really valued Central Park they way they say they do, they would pony up the money to keep it the way it is." My interlocutor was, suffice it to say, skeptical. Little did I know I was right in a sense: people have ponied up to maintain the park!

In a piece titled "The Republicans' New Voodoo Economics?" Greg Ip writing in The Washington Post tries to connect up the current GOP with a whole variety of what he sees as wrong-headed ideas, including those of the Austrians. What's most frustrating about the piece is his description of the Austrian view of recessions: "Austrians considered recessions a natural feature of capitalist economies, and efforts to suppress them via monetary or fiscal policy were apt to distort investment, worsen booms and busts, or lead to inflation."

It's certainly true that Austrians believe that using monetary and fiscal policy will make matters worse, but Ip makes it seem as though recessions just appear from nowhere (a "natural feature of capitalist economies"), when the strongly dominant view among Austrians is that recessions are caused by government monetary policy via the central bank. This misrepresentation makes it look like Austrians are pure fatalists about recessions and their human toll, when in fact a great deal of ink has been spilled as to how better monetary institutions can prevent recessions in the first place, and obviate the exacerbation of those problems that comes from government monetary policy. Ip's version of Austrian macro nicely fits into the now common narrative (see Lord Skidelsky's comments in the LSE debate and subsequently - see also George Selgin's brand new response) that Austrians simply don't care about trying to prevent recessions and minimize their human toll. It also likely plays to the pre-conceptions the Post's readers have about critics of activist policy.

And yes, I'm well aware that Hayek argued that you can get the cycle without activism by the central bank, hence my language of "strongly dominant." But in the larger rhetorical context, that's some intellectual hair-splitting when the vast majority of Austrian arguments about the source of recessions (rightly or wrongly) have focused on the expansionary policies of central banks. Greg Ip is utterly unaware of these intra-school debates and his version of the theory is the result either of not bothering to engage with the actual work of the Austrians or intentionally fudging the theory to make it fit the narrative that drives the story. Whichever it is, it's voodoo journalism.

Putting aside that it might be self-serving, the thing that really bothers me about so many media treatments of the Austrians, is that they focus almost solely on work written 75 years ago, making it seem like there's no modern work in the tradition and that Austrian arguments haven't been advanced and refined in light of subsequent criticisms and other schools of thought. If journalists are going to discuss or interview living Keynesians and their work, then is it really that hard to Google "Austrian economics" and find some actual, living Austrians who have written on monetary and macro as part of your attempt to understand the role that these ideas might be playing in current policy debates? No one says journalists have to pay attention to Austrian ideas, but if they are going to do so, shouldn't they feel an obligation to talk to actual people who are working on the ideas? Not doing so seems to me to be another example of voodoo journalism.

Earlier this afternoon I appeared on the NPR affiliate out of Los Angeles discussing the whole Romney "Corporations are People" kerfuffle. I was paired with none other than Jared Bernstein, former chief economic adviser to Joe Biden and well-regarded left-leaning economic analyst (whose PhD is actually in Social Welfare). You can find the audio here.

I think it was a terrific segment. The conversation was fact-based, civil, and constructive and I think anyone who was listening got a better understanding of the issues and how it can be (following up on Pete's comments about Warren Samuels) that two people can disagree profoundly without believing the other is evil and/or stupid. Judge for yourself.

I'll only say that I'd be happy to "debate" Jared again any time.

UPDATE: More Horwitz on the airwaves - my appearance this morning on "Butler on Business" out of Atlanta discussing the Hoover myth and the Great Depression.

I heard the sad news yesterday that Warren Samuels, the great champion of the history of economic thought, and of modern institutionalist political economy, and law and economics, had passed away at his home. Warren was not only a great scholar and mentor to those who pursued a scholarly approach, as opposed to the more fashionable scientistic approach, to the study of political economy, he was a genuinely kind and great man. He was completely devoid of the typical academic "puffery", and instead was just an intellectually curious and engaging man. When you spoke, he listened to you before challenging you, when he spoke, you realized that every word he uttered had years of study and thought behind it.

I first met Warren when I was just starting graduate school at GMU. I wrote a paper the summer before dealing with Galbraith and Hayek on the "dependence effect". At GCC, Sennholz had us read Marx, Keynes and Galbraith in the original, so when I started graduate school in 1984 I didn't really know about contemporary economists such as Stiglitz (and imperfect information) or Lucas (and New Classical Economics), but I did know about Galbraith. In fact, I owned every book of Galbraith's and had read them all at that time. So when I started thinking about writing professionally (a task that Don Lavoie encouraged), I could read the Journal of Economic Issues, but not really the American Economic Review or Journal of Political Economy. So I read JEI -- Warren was editor from 1971-1981. I read J. R. Stanfield's reassessment of The Affluent Society, where he has a sort of caricature of Hayek. I wrote originally a short comment, which then evolved into a more developed paper. Lavoie read it, and suggested I write to Warren Samuels, who had recently written a similar paper on the commonalities and differences between the Austrians and the Institutionalists. This started a correspondence and friendship. That friendship grew deeper after we met at the History of Economic Society Meetings, and then when I took my first teaching job in Michigan at Oakland University, about an hour from Michigan State University, where I would make the weekly drive up to participate in Warren's seminar in history of thought and methodology.

It was always a highlight for me to see Warren either at the HES meetings, or the Duke HOPE meetings, or when he agreed to come and present a paper either at Oakland, NYU, and GMU. I always enjoyed his letters and then emails asking me about my understanding of the Coase theorem, the invisible hand, the cost/benefits of schools of thought, etc. And, I especially enjoyed seeing him encouraging and mentoring young people interested in scholarship in political economy. When I think of HES, I think of Warren and his encouragement of young scholars entering the field.

Prior to meeting Warren, I think it would be accurate to say that I divided the world neatly into those who are (a) stupid, (b) evil, and (c) those who obviously are smart and good who agree with me. I disagreed with many people both in college and outside of the academic setting. But I thought the root cause of the disagreement was in 90% of the cases was a consequence of them being misinformed because of their lack of exposure to the ideas of Mises and Rothbard. Once they would have read Mises and Rothbard, their world view would change appropriately. Unless, of course, they were in the 10% of people who are evil. Warren destroyed that simple intellectual picture of the world. Here was a man who was as sharp as anyone I have ever met, who had read more and in fact forgotten more than I would ever read, and who was genuinely interested in the truth with no hidden agenda, and yet his disagreed; he questioned; he probed; he thought about the choice of words; he simply expressed the joy in figuring things out. In the process, Warren didn't overturn my intellectual commitments to the Austrian school and the Virginia Political Economy tradition in which I was being educated, but he made more self-critical and less self-satisfied, and hopefully a better scholar, teacher, and a more sophisticated representative of the Austrian school and Virginia Political Economy.

I think he did this to everyone who was close to him, I think especially of John Davis, Steve Medema, Jeff Biddle, and Ross Emmett. Whatever your perspective, Warren's probing mind made you more self-reflective and ultimately a better scholar, a better economist, a better teacher, than you otherwise would have been.

Besides his role as a mentor to generations of scholars in political economy, Warren was also just an amazing scholar and economic thinker. He set a standard for professional work ethic that I think is rivaled only by his debate partner in political economy --- James M. Buchanan. Everyone should just look at his CV and see what it takes to build a professional career as a scholar. He spent his career as an engaged editor of scholarly journals, of book series that kept the classic works in print, as well as encouraging contemporary work, and he was an author of journal articles as well as books. He just worked day in and day out as a scholar of political economy. His natural curiosity took him from Wisconsin style institutionalism, to Classical economics, to Chicago economics, to public choice, to Austrian economics, to Coasean law and economics, etc. The overarching theme of his work is the role of government in political economy, and he kept thinking seriously about that question throughout his career.

This book examines the use, principally in economics, of the concept of the invisible hand, centering on Adam Smith. It interprets the concept as ideology, knowledge and a linguistic phenomenon. It shows how the principal Chicago School interpretation misperceives and distorts what Smith believed on the economic role of government. The essays further show how Smith was silent as to his intended meaning, using the term to set minds at rest; how the claim that the invisible hand is the foundational concept of economics is repudiated by numerous leading economic theorists; that several dozen identities given the invisible hand renders the term ambiguous and inconclusive; that no such thing as an invisible hand exists; and that calling something an invisible hand adds nothing to knowledge. Finally, the essays show that the leading doctrines purporting to claim an invisible hand for the case for capitalism cannot invoke the term but that other non-normative invisible hand processes are still useful tools.

I cannot wait to read the book and hear Warren's voice challenge me once again, while also inviting me to join him in this inquiry; to listen and learn, but also to push back and probe deeper into our interpretative differences.

Warren Samuels was a scholar's scholar, and a teacher's teacher. He was also a great friend. I will miss him dearly. As with my thesis advisor, Don Lavoie (who tragically died way too early), Warren's voice will always ring in my ear to check myself, and spur me on to do better than I otherwise would as a scholar, teacher and mentor.

Warren was a role model for all of us working in the field of political economy. I want to thank him for his work and his example, and to celebrate and honor him today and everyday.

The third of what will eventually be four Learn Liberty videos I shot earlier this year is now out. This one addresses the question of whether the cost of living has risen over the last 100 years, a topic I've written much about hereatCP.